What the housing market could look like in 2017

Financial expert Preet Banerjee looks at three things you could possibly expect with the 2017 housing market.

Canadians coast-to-coast love to talk about the cost of homes, and 2016 was a hot year for the housing market in many cities.

But experts say you shouldn’t necessarily expect the same this upcoming year.

Here’s what is likely to happen to the Canadian housing market in 2017.

  1. Toronto will stay hot.

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A real estate sold sign hangs in front of a west-end Toronto property Friday, Nov. 4, 2016. THE CANADIAN PRESS/Graeme Roy     Average price for detached home in Toronto hits $1.35M as prices soar: real estate board

The GTA will be the strongest market in 2017, said James Laird, He attributes this to simple supply and demand. There aren’t a lot of detached and semi-detached houses, he said, and lots of people want them, which will continue to push prices higher.

Sal Guatieri, senior economist at BMO Capital Research, think the Toronto market will cool “a little bit” but overall remain very strong in 2017. “We’ll probably continue to see price increases, but not on the order of 20 per cent. More like the mid-single digits for next year in Toronto.”

  1. Vancouver could cool.

Here’s where opinions disagree. Guatieri believes Vancouver prices will continue to fall in 2017, as they started to at the end of 2016, likely at least partly in response to the province’s foreign buyer tax.

Paul Taylor, president and CEO of the Mortgage Professionals of Canada, isn’t so sure. The issue for him, again, is supply. And demand means that prices could start to climb again, he said. “These are world-class cities. Vancouver is beautiful and Toronto is a financial hub, so in comparison to other global real estate markets that you put in the same category, it’s actually still quite a long way upwards that those values could increase to even be comparable to those other cities.

  1. Everywhere else will cool slightly or stay the same.

Taylor thinks recent changes to mortgage rules will end up cooling the housing market a little outside Toronto and Vancouver.

These changes, introduced in October and November, require homebuyers looking for an insured mortgage to pass a “stress test” and qualify for a mortgage rate at the five-year Bank of Canada posted rate — which is typically much higher than the rate offered by banks. Another change requires buyers to put a larger down payment on houses worth more than $500,000.

Taylor thinks this could reduce the purchasing power of first-time home buyers — and not just in the hot markets of Toronto and Vancouver.

You’re going to see price reductions in a lot of places where the economy is already quite weak comparatively,” he said.

Laird is more optimistic. “Alberta housing will stabilize in 2017,” he said, largely due to the price of oil slowly climbing back up and oil-related layoffs having worked their way through the market already.

Guatieri also thinks that most of Canada’s housing market will be fine, with healthy steady growth and a modest increase in prices.

  1. Breaking into the housing market will get even harder.

Those mortgage rule changes will result in first-time home buyers losing about 20 per cent of their purchasing power, said Taylor.

Guatieri puts the number closer to 10 to 14 per cent more income to keep a buyer’s debt-service ratio at an appropriate level.

But whatever the number, the bottom line is this: first-time home buyers are going to have to come up with bigger down payments and qualify for higher-rate mortgages. This likely means they will have to buy cheaper houses, or just continue to rent.

2017 is the most difficult year for a first-time home buyer in the last 10, easily,” said Laird.

And it’s just going to get harder as the year goes on, he thinks. “Mortgage rates will rise. We will finish 2017 with higher mortgage rates than we started 2017.”

This is for two reasons:

The government reduced the number of mortgages that could be insured, said Laird, and lenders will want to compensate for the added risk by charging consumers a little more.

The second reason, he said, is Donald Trump.

  1. Donald Trump will indirectly affect the Canadian housing market.

Yes, Donald Trump could be partly — if remotely — to blame for rising mortgage rates in Canada.

“Bond yields are pushing up from their rock-bottom lows,” said Laird. “This was largely created by the Trump election and some of the policies that he has started to announce.”

Higher bond yields mean higher borrowing costs for banks, said Guatieri, and banks are passing those costs on to the consumer. The “Trump Bump” means even higher mortgage rates for Canadians.

If you’re looking to buy your first home in the next few months, you should get pre-approved for a mortgage now before rates go up, said Laird. “Anyone considering shopping in the springtime, in the next three or four months, they should get a pre-approval today because they can hold today’s rates for up to 4 months.